Shoprite’s CEO warns that proposed VAT hikes could disrupt consumer recovery in South Africa. Internal government disagreements have delayed the budget announcement regarding a potential increase from 15% to 17%. Businesses are struggling with rising food costs and unemployment rates, and any new tax increases are likely to be passed to consumers, jeopardizing overall spending patterns.
The Chief Executive Officer of Shoprite Holdings Ltd., Pieter Engelbrecht, expressed concerns that proposed increases in the value-added tax (VAT) by the South African government could hinder a fragile recovery in consumer spending. The finance minister’s budget speech has been postponed due to internal disagreements about a potential 2 percentage point hike in the VAT rate, taking it to 17%. Engelbrecht articulated his hope that such an increase would not materialize, highlighting that consumers are already financially strained.
In light of ongoing economic challenges, businesses have invested significantly in their infrastructure, such as building independent power and water systems, due to persistent service interruptions. Additionally, they have established new distribution centers to improve stock levels amid inefficiencies in local production and port operations. Engelbrecht indicated that businesses may struggle to absorb additional food taxes, which would consequently have to be passed onto consumers.
Engelbrecht voiced his principal concerns regarding the escalating costs of food and the high unemployment rates in South Africa, where few businesses report job creation. Although there is some recovery in consumer spending spurred by lower inflation and interest rate reductions, external risks persist, affecting overall market confidence.
Woolworths Holdings Ltd. CEO Roy Bagattini warned that any increase in food taxes would ultimately be transferred to consumers, challenging the consumption pattern in the country. Recently, the South African government has engaged with businesses about strategies to manage food prices, and Shoprite, alongside other retailers, is exploring advanced technological solutions to mitigate food inflation.
Despite a decrease in local inflation contributing to improved sales for Shoprite, significant challenges remain as consumers feel pressure due to financial constraints. Engelbrecht pointedly remarked, “People are desperate.” He emphasized that the issue is not merely about reduced income but rather the diminishing purchasing power of consumers.
The potential increase in value-added tax in South Africa poses a significant threat to the delicate resurgence of consumer spending, as articulated by leading retailers. With the overall economy still recovering, any tax hikes may lead to further financial strain on shoppers. Collaborations between the government and private sector to address food pricing remain essential in navigating these economic challenges.
Original Source: www.livemint.com
